Thursday 31 August 2017 by Mary Anne Low Company updates

Emeco - FY17 results highlight transformational year

On 31 August 2017, Emeco released its full year 2017 financial results.

Emeco successfully completed its recapitalisation exercise and mergers with Andy’s Earthmovers (Asia Pacific) Pty Ltd and Orionstone Holdings Pty Ltd on 31 March 2017, which resulted in an increased fleet sized (by around 80% to circa 800 machines in Australia) while reducing its average age, and stronger balance sheet with lower leverage.

A summary of the company’s FY17 financial performance is as below:


Source: Emeco, FIIG Securities 


Key points:

  • Revenue improved by 12% per corresponding period (pcp) to AUD233m, and EBITDA also increased by 54% to AUD83.5m, primarily driven by strong revenue in 4Q17, reflecting added scaled following the mergers of Andy’s and Orionstone in addition to improved market conditions. EBITDA margin improved by 9.8pt to 35.8% as the business realised a full year benefit of initiatives implemented in FY16
  • However, operating free cash flow was 44% lower pcp at AUD36.9m, impacted by the working capital deficiencies of Andy’s and Orionstone, as well as expenditure incurred in 4Q17 to bring the acquired fleet from Andy’s and Orionstone up to Emeco’s operating standards
  • Following the mergers, the enlarged Emeco group now enjoys the benefit of diversification from a geographical, commodity and customer perspective, and the integration process is proceeding well


Note: Above analysis relates to 12 month period ended 30 June 2017 and includes discontinued operations

Source: Emeco

  • Most of the group’s Australian businesses continued to perform strongly, with the exception of the businesses in Victoria where management is focused on reducing costs and winding out the contract mining projects (acquired as part of the merger and is not part of Emeco’s core business)
  • Following a strategic review of the group’s international operations which continued to struggle, the group reduced its exposure to the Canada and Chile markets via asset swap transactions, which added 108 pieces of equipment to the Australian fleet and generated AUD25.6m cash. Management will now focus on its Australian operations following the discontinuation of the Chile operations but retention of the Canadian services business. However, Emeco will continue to consider global projects through strategic partnerships with original equipment manufacturers and local miners/contractors
  • The group’s operating utilisation continued its improving trend, ending at 56% as at 30 June 2017 (average FY17 53%; FY16 44%). Emeco now has an additional 400 pieces of equipment and is focused on boosting operating utilisation and generating greater returns on its assets



Note 1: Operating utilisation based on maximum usage of 400 hours per month
Source: Emeco

  • The recapitalisation enabled Emeco to extend its debt maturity, with its revolving credit facility maturing in March 2020 and the senior secured notes maturing in March 2022. As at 30 June 2017, Emeco has access to AUD62.3m of undrawn bank facilities and AUD17m of cash. Together with the enlarged EBITDA base, Emeco was able to delever to 5.5x on a net debt/EBITDA basis at 30 June 2017 from 6.7x at 30 June 2016

Outlook

For the next twelve months, the group has provided a guidance on the following issues:-

  • Continue to focus on growing the Australian market share
  • Continue to extract operating cost synergies
  • On track to realise the target AUD15m of annualised synergies by the end of FY18
  • Targets leverage of 2.0x by FY20
  • Expects minimal financial contribution from overseas operations

 

A link to the results is available here.